|
Problem 10.14 |
Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,751,133. have a life of five years, and would produce the cash flows shown in the following table.
|
Year |
Cash Flow |
|
1 |
$619,915 |
|
2 |
-277,771 |
|
3 |
717,544 |
|
4 |
1,014,631 |
|
5 |
592,847 |
What is the NPV if the discount rate is 14.95 percent?(Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)
|
NPV is |
$ |
||
|
Problem 11.20 |
|||
Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.00 million. This investment will consist of $2.90 million for land and $9.10 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.07 million, $2.26 million above book value. The farm is expected to produce revenue of $2.10 million each year, and annual cash flow from operations equals $1.97 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment.(Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)
|
NPV |
$ |
|
The project should be |
. |
||
|
Problem 11.24 |
|||
Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountain s opportunity cost of capital is 12.5 percent, and the costs and values of investments made at different times in the future are as follows:
|
Year |
Cost |
Value of Future Savings |
|
|
0 |
$5,000 |
$7,000 |
|
|
1 |
4,600 |
7,000 |
|
|
2 |
4,200 |
7,000 |
|
|
3 |
3,800 |
7,000 |
|
|
4 |
3,400 |
7,000 |
|
|
5 |
3,000 |
7,000 |
|
Calculate the NPV of each choice.(Round answers to the nearest whole dollar, e.g. 5,275.)
The NPV of each choice is:
NPV0 = $
NPV1 = $
NPV2 = $
NPV3 = $
NPV4 = $
NPV5 = $
Suggest when should Bell Mountain buy the new accounting system?
|
Bell Mountain should purchase the system in . |
|
Problem 12.24 |
Chip s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 88 percent as high if the price is raised 16 percent. Chip s variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm s FCF for the year?(Round answers to nearest whole dollar, e.g. 5,275.)
|
At $20 per bottle the Chip s FCF is $ and at the new price Chip s FCF is $. |
|
|
Your answer is incorrect. Try again. |
|
Capital Co. has a capital structure, based on current market values, that consists of 50 percent debt, 11 percent preferred stock, and 39 percent common stock. If the returns required by investors are 9 percent, 13 percent, and 15 percent for the debt, preferred stock, and common stock, respectively, what is Capital s after-tax WACC? Assume that the firm s marginal tax rate is 40 percent.(Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)
|
After tax WACC |
= |